Average U.S. Gasoline Price at Pump Reaches Record High

By KENNETH N. GILPIN

Published: March 24, 2004

Retail gasoline prices hit a record high today, the American Automobile Association said, months before the start of the peak summer driving season.

The increase, to an average price of $1.74 per gallon for regular gasoline, exceeds by one-tenth of a penny the record set on Aug. 30. And it reflects a substantial increase in oil prices over the past three months.

Today the AAA reported that California had the highest average gasoline prices, at $2.14 a gallon.

The lowest average price was recorded in Georgia and South Carolina, at $1.61 a gallon.

Although gasoline prices are at a record high in nominal terms, the current price is still significantly less than the inflation-adjusted peak of $2.94 a gallon reached in 1981. But that level could be challenged this summer.

The price of West Texas Intermediate crude, hovering around $37 a barrel, has risen about 14 percent since December. Crude prices are up a similar amount from the levels of March 2003.

The increase in gasoline prices, and the possibility that they could go higher this summer, is having an impact on the economy, and could become increasingly important in the presidential election campaign.

Responding to questions from reporters this morning, Scott McClellan, President Bush's spokesman, said, "Like most Americans, the president is concerned about rising gas prices."

But Mr. McClellan said the government has no plans to either tap the Strategic Petroleum Reserve or to suspend the program begun in November 2001 to pump oil into the reserves, moves that analysts say would cause oil prices to fall.

Instead, Mr. McClellan renewed the administration's call for Congress to pass energy legislation that would provide provide tax breaks and other incentives for exploration and production.

The legislation has been derided as laden with money for special interest groups.

Passing the energy bill "may do something for gasoline prices in 2008 or 2009, but it will do nothing to help them now," said Philip K. Verleger, a visiting fellow at the Institute for International Economics in Washington.

"Long term, there is only one way to get energy prices down," he said, "and that is to use less."

Mr. Verleger said that over the balance of the year oil prices are likely to remain high, and could peak around $40 per barrel.

The increase that has already occurred is acting as a drain on consumption, economists said.

If oil prices remain at current levels, Andrew Tilton, an associate economist at Goldman Sachs , said in a recent analysis, disposable income would be cut by an annualized $30 billion, or three-tenths of a percentage point of gross domestic product.

"Record high gasoline and energy costs are not the issue they used to be for the U.S. economy," said Alan Sinai, chief executive of Decision Economics, a consulting firm. "But going forward they nevertheless represent a threat to consumer spending and the economy."

Gasoline prices could rise this summer as refineries churn out more than 15 different blends of gasoline for warm-weather driving.

If there are any problems at the nation's refineries, disrupting deliveries, "retail prices could go to $3.50 a gallon" this summer, Mr. Verleger said.

Such an increase could pose political problems for President Bush.

"This is another gamble the administration is taking," said Norman Ornstein, resident scholar at the American Enterprise Institute in Washington. "They are gambling they can continue to pursue the policies they have pursued, and when it really counts prices will start to fall."

But Mr. Ornstein added, "If we really do get prices moving up this summer, it is not likely they will drop dramatically by the fall, and that is a problem for them."

Mr. McClellan was asked this morning if the administration would pressure the Organization of Oil Exporting Countries to increase production, which could help to push down prices.

"We've always said that sustained economic growth requires abundant and affordable supplies of energy," he said. "The United States continues to emphasize that oil prices should be determined by market forces in order to ensure their adequate supplies."

National security concerns were paramount when the administration began its program to add oil to the Strategic Petroleum Reserve.

But Mr. Verleger argues that program has not only inflated oil prices, but has also indirectly aided and abetted terrorist organizations.

The government is adding about 160,000 barrels a day into the Strategic Petroleum Reserve.

"Had the government not added to the reserve since it started in November of 2001, oil prices today would be as much as $6 to $8 a barrel lower than they are," Mr. Verleger said.

"To the extent terrorists get their money from countries like Saudi Arabia, this has increased flows to them," he added.

"We as a nation may be getting more prepared" to deal with a potential cut-off in the flow of Middle Eastern oil, "but the way you cut off the flow of funds to the petro-terrorists is to bring down the price of oil. By adding to the S.P.R., the government is doing just the opposite."